Abstract

Unemployment insurance agencies often combat moral hazard by punishing refusals to apply to assigned vacancies. However, the possibility to report sick creates an additional moral hazard, since (at least in Germany) during sickness spells, minimum requirements on search behavior do not apply. We analyze the effects of vacancy referrals and sanctions on the unemployment duration and the quality of job matches, taking the endogenous probability of reporting sick into account. We estimate multi-spell duration models with selection on unobserved characteristics. We find that vacancy referrals and imposed sanctions increase the exit rate to work and that these jobs go along with a lower wage. While we find a strong impact of receiving a vacancy referral on the probability of reporting sick at the beginning of an unemployment spell, this effect is becoming smaller the longer individuals are unemployed. This suggests that the value of receiving a vacancy referral is increasing over time spent in unemployment. Overall our results indicate that around 8.5% of sickness absence during unemployment are induced by receiving a vacancy referral.

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